SC Upholds Constitutional Validity Of Payment Of Gratuity (Amendment) Act, Extending Gratuity Benefit To Teachers Retrospectively

The Supreme Court's Bench of Justice Sanjiv Khanna and Justice Bela M Trivedi has upheld the constitutional validity of Payment of Gratuity (amendment) Act, 2009 extending gratuity benefit to teachers of private Educational Institutions retrospectively.

The Bench observed that the amendment with retrospective effect remedies the injustice and discrimination suffered by the teachers on account of a legislative mistake.

The Bench was adjudicating upon appeals challenging judgments of various High Courts involving a common question – constitutional validity of the amendment to Section 2(e) and insertion of Section 13A to the Payment of Gratuity (PAG) Act, 1972 , with retrospective effect from April 3, 1997 vide the Payment of Gratuity (Amendment) Act, 2009.

By a notification, the provisions of the PAG Act were made applicable to the educational institutions with ten or more employees. The private schools being educational institutions, in which ten or more persons are employed, became liable to pay gratuity to their employees as per the provisions of the PAG Act.

However, some private schools raised a dispute claiming that the teachers in educational institutions or schools are not "employee" as defined in Section 2(e) of the PAG Act. The contention that the teachers did not fulfil the description of the employees, who are skilled, semi-skilled or unskilled persons employed on wages, was accepted by Gujarat High Court.

This decision of the Gujarat High Court was challenged by an association of teachers – Ahmedabad Private Primary Teachers' Association before Supreme Court, but their challenge was rejected.

In 2009, the Payment of Gratuity (Amendment) Bill, 2009 was passed seeking to amend the definition of the word "employee" and to extend the benefit of gratuity to teachers of private educational institutions.

Several private schools challenged the constitutional validity of the amendments.

The two main grounds of challenge raised were- (a) The legislation vide the Amendment Act 2009 overrules the judicial decision in Ahmedabad Private Primary Teachers' Association (supra) and violates the doctrine of separation of powers. (b) The retrospective amendments are unreasonable, excessive and harsh, and therefore, unconstitutional.

Advocate RP Gupta represented Appellants whereas Advocate Anil Katiyar represented Respondent-Ministry of Labor and Employment.

On the first issue the Supreme Court noted that "…Doctrine of separation of powers demarcates the exclusive domains of the legislature, which enacts the laws, and the courts', which interpret the law as enacted. The earlier decision in Ahmedabad Private Primary Teachers' Association (supra) by this Court had interpreted the law, that is, Section 2(e) of the PAG Act, as it then existed in the statute. The judgment even acknowledged and prompted the legislature to enact a legislation granting the benefit of gratuity to teachers, who had been excluded because of the legal flaw. When the legislature acts within its power to usher in a valid law and rectify a legal error, even after a court ruling, the legislature exercises its constitutional power to enact the law and does not overrule an earlier court decision."

On the second issue, the Court observed thus "The amendment enforces and gives effect to what was intended by the notification, but could not be achieved on account of the technical and legal defect. The lacuna, a distortion in the language that had the unwitting effect of leaving out teachers, has been rectified so as to achieve the object and purpose behind the issuance of the notification, making the PAG Act applicable to all educational institutions."

The Court pointed out that the provisions of the PAG Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 3rd April 1997, and at the time of termination have rendered service of not less than 5 years.

"The private schools would make payment to the employees/teachers along with the interest in accordance with the provisions of the PAG Act within a period of 6 weeks from today and in case of default, the employees/teachers may move the appropriate forum to enforce payment in accordance with the provisions of the PAG Act.", the Court held while dismissing the appeals.

Cause Title- Independent Schools' Federation of India (regd.) v. Union of India and Anr.

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